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RBI keeps repo rate unchanged, home loan rates may remain steady

By Rishabh Chamoli | 2023-04-10

The Reserve Bank of India (RBI) has maintained status quo by keeping the repo rate at 6.50 percent. The bank had increased the repo rate by 25 basis point (bps) on February 8, 2023. Although the hike followed similar announcements by other banks, the current rate may not lead to more hikes in lending rates.

Update The Reserve Bank of India (RBI) has kept the repo rate unchanged at 6.50 percent in the first Monetary Policy Committee (MPC) meeting for the current Financial Year (FY) 2023 to 24. The cumulative repo rate increment during FY 2022 to 23 stands at 250 basis points (bps) after six upward revisions since May 2022.

Starting the new FY 2023 to 24 on a positive note, the RBI has announced no further hikes in the repo rate the rate at which the apex bank lends money to banks and financial institutions across the country. The current repo rate stands at 6.50 percent. After maintaining an accommodative stance on the repo rate at four percent during the pandemic, the first repo rate revision was announced in May 2022 with a hike of 40 bps. Since then, the RBI has announced six more repo rate hikes. Of this, 50 bps hike was introduced three times, followed by a 35 bps hike in December 2022. The last one was implemented in February 2023, which was a 25 bps rise.

The revisions in repo rate came into effect after MPC meetings scheduled in 2022 on May 4, June 8, August 5, September 30, and December 7. The final increase in the lending rates for the fiscal year ending on March 31, 2023, led to similar hikes in the home loan interest rates charged by banks, thus, impacting the home purchasing power of the masses. However, after the current announcement, the home loan rates are expected to remain stable until the next hike.

How will the current repo rate impact homebuyers?
Amid global economic slowdown and rising inflation, financial experts anticipated a 25 bps hike in the repo rate during the first MPC meeting of FY 2023 to 24. However, the RBIs decision to maintain the repo rate to 6.50 percent is a welcome decision appreciated by the homebuyer and developer community.

The previous fiscal year witnessed a rise in the cost of raw materials, leading to an increase in the price of housing units. As the repo rate saw upward revisions, home loan rates became increasingly expensive. This discouraged potential homebuyers from investing in the sector. However, the current neutral stand by the apex bank provides some relief to buyers and is expected to help contain the lending rates until any further announcements by the RBI. As a result, homebuyers, who had deferred their homebuying plans, may soon be on the lookout for favourable deals and keep the sector afloat despite inflationary pressures.

Experts also believe that the RBIs decision should be supported by State governments with suitable rebates. A decrease in the stamp duty and registration charges may further increase the homebuying appetite across all segments.